The British pound held steady against the US dollar as 2024 concluded, trading around $1.2552. However, market sentiment towards sterling remains cautious as traders anticipate a turbulent 2025. Experts predict a year marked by economic challenges, potential interest rate cuts by the Bank of England, and external pressures stemming from shifts in US policy.
Karl Schamotta, chief market strategist at Corpay, anticipates the Bank of England will implement more aggressive interest rate cuts than currently projected. This action could limit the pound’s support against the euro, potentially hindering its performance, especially in the first half of 2025. The divergence in monetary policy between the UK and other major economies is expected to be a key driver of currency fluctuations.
Despite the anticipated headwinds, Schamotta suggests the pound could rebound later in the year. He posits that if the US dollar’s recent strength continues into the first quarter, the pound might suffer alongside other global currencies. However, a recovery is expected once markets reassess the trajectory of US policy. This recovery could potentially push the GBP/USD exchange rate above $1.30 by year-end. This optimistic outlook hinges on a stabilization of global economic conditions and a more predictable US policy environment.
Interestingly, the pound concludes 2024 as the strongest performing major currency against the dollar, demonstrating resilience despite underlying economic concerns. The pound also remained stable against the euro, trading at €1.2056. This stability against the euro suggests that the challenges facing the UK economy are also impacting the Eurozone, mitigating relative currency movements. The coming year will likely reveal whether the pound can maintain its current strength or succumb to predicted economic pressures.
